System of accrual accounting



Feb. 15 1927.

l.. A. FoQE' SYSTEH'DF 'ACCRUL ACCOUNTING.

Filed Jure 30. 192'1 6 Sheets-Sheet l Feb. 15 1927.

L. A. FOOTE SYSTEM OF lACCRUAL ACCOUNTING Filed Junje' so, 1921y @sheets-neat 2 1 ....mmz 405.200 mooz.

Brv

' ATTORNEY l l v Feb 15 27 L. A. Foo-rE SS-TEM OF CRUAL ACCOUNTING Filed June so. 192i 6 Sheets-Sheet 6 .NAW .km Hs Patented Feb. 15, 1927,

UNITED ,STATES oFFiE.

LEWrs A. roo'rrz, or NEW YORK, N; Y.l

' -SYSTEM OF'ACCRUAL 4.AGCiOUN'TIlI' App'iication mea June 3o, 192i. seriai No. 481,484.v

The invention relates to a system of ac- :rual accounting, which is designed primarily for use by banking institutions but is readily adaptable to the accounts of brokers, fire 5 and life insurance companies, Wholesale, and

figures which are invaluable for comparative.y

statements. But' the accrual methods `here-- tofore employed have been ill adapted to the 4accounts of, and consequently havev never been fenerallyV 4adopted by, financial institutions. All prior systems, so far as I am aware, require the. carrying of an additional set of accounts, usually inthe general'ledger, such as accrued, prepaid, unearned, and rel serve accounts; and this `in turn necessarily involves the making and posting of debit and credit journal. entries, daily or periodically, to transfer the current accruals of earnings and expenses to the general ledger, thereby entirely breaking .up the cash .basis of accounting lVith the cash basis thus destroyed, it is impracticable for bankers to analyze or check the cash figures in these accounts, as the cash entries are not readily distinguishable from the journal entries. Furthermore, the preparing and posting daily of the many income and expense and adjustment entries not only 'involve much time Vand care but is the source of many errors in -the accrual work, errors which it is difficult to locate and correct, with the result that the labor and cost involved are out ofall proportion to the more or lessv inaccurate results obtained.

B y present .invention I have obviated these'bgbjectionsand haveprovided a com- 115 ,plete unitary system of accrual accounting,

peculiarly' adaptedl tol the requirements@ of come and expense is subject to division into accrual units of like denomination and constant in value under a fixed rate of interest Y and readily adJustable to the new rante whenever. a rate change occurs. These accrual units are, as applied to income, the one y days earnings on a"give`n principal, and, similarly, as applied to expense, the one days expense incurred on a given principal.

The system comprises, as one of its main features, the special income and expense control sheets provided for they purpose and the novel 'method of establishing daily (or for'such other unit of time as may be selected) and carrying, on one section of thesheet and in what may -be regarded as a. memorandumcontrol oraccrual account, the accruals of income or expense items both for the current time unit and for the period to date,

and, in another or cash section in juxtaposition thereto, the respective received or paid account, also for the current time unit and for the period to date. An additional or third section is preferably provided in which 'is established and entered, whenever found desirable, a suspense account or balvancenwlfifich, being the dierenc'e between the corresponding balances in the accrual and cash sections, represents income unearned or receivable andexpense prepaid,

payable', or reserves, as thecase may be These accounts, both of income and expense, may be carried, under as many or as few classifications as desired, in the general ledger; but, preferably, they are carried under separate cover, subsidary to and under control of the general ledger, in loose-leaf form upon what .I have designated as income and expense control sheetsf-a separate sheet for each classification, including classifications where income is considered as earned when received and expense ,is treated as incurred when paid and are carried` as nonaccrual or cash accounts-constituting what is called an Accrual journal-ledger. The accruals in the control accounts are easily established and carried on these4 control sheets, and the extensions thereof, as well as the extensions in the received and paid 4 accounts, can be quickly and readily verified'. Thus, thecon'trol or accrual accounts, showingV the real earnings 'and the real expenses, are tied up with the corresponding cash received or paid accounts in such man-- ner as to aord, in additionL to' a marked economy vin time and-labor` and other advantages, a continuous vautomatic audit and control of income and expense.

A statement sheet provided for, and the v' inetbd -,employed in `preparing from the control sheets of the Accrual journal-lef'lgcr, ricd in the Accrual journal-ledger of a.

a daily, periodic, or occasional, statement covering profit and loss, receipts and disbursements, and suspense balances, constitute another important feature of' the system. This statement ismade up, daily or as of any desired date, by-copying on the statement sheet, opposite the different classifications of both income and expense, the

balances shown for that day in the accrual' and cash sections of the control sheets of the Accrual journal-ledger, then establishing thesuspense balances by uniformly sub-` tracting each accrual period to date balance from the corresponding received or paid balance, and finally footing the several sets be proved by cross footings, and any error detected thereby can be located by crosscheckings and by checking forward from the last preceding statement. Further, these statements are'of .great value for purposes of comparison and-also `afford the basis for the preparation of reports of condition, tax returns, etc., in compliance with the ever increasing and exacting statutory requirements. p

, The control'or accrual accounts carried on the Accrual journal-ledger control sheets are by means of the profit and loss statements tied up with the general ledger without posting these accounts therein, just as closely as if they werev actually double posted daily as heretofore. Moreover, the control sheets on which the accrual accounts appear in juxtaposition to the received and paid acounts provide even more information, and with much less work, than is obtained under other accrual systems when the current accrual entri-es are posted in. the general A ledger. Accordingly, unless otherwise specially desired, both accrual-and received and paid accounts can be, and preferably are, omitted entirely from the general ledger, and only one account, which may be designated as an income and expense account (ccrual journal-ledger control) and which controls the balances of the received and paid accounts in the Accrual journal-ledger, is carried therein. As the result, no postings of accruals to Ithe (general ledger are required except forv the purpose of closing the books at the end of the fiscal year or period, and then two postings only of totals are necessary.

Other features, -subsidiary to the income account for notes and bills-.discounted Cerbank, are provided by special-sheets for, and the methods ofr4 making up, the register and thetickler of such notes and bills.

The system v.also includes such further features as are hereinafter described, and particularly pointed out .in the appended claims.

rllhe invention will be understood by reference to the accompanying drawings in which are shown, by way of illustration merely, the preferred forms for and methods employed in keeping the accounts of a bank or similar institution according to my improved system, and wherein- Figures l-f, inclusive, are broken views of five of the control sheets of an Accrual `journal-ledger, three. for income classifications and two for expense classifications respectively, which have been selected as typical of all these sheets and which with the figures shown thereon illustrate the method employed in the practice of this feature of vmy system; Figs. 6 and 7 are similar views of sheets for a register and a tickler, respectively, of notes-and bills discounted, showing forms for such sheets and the method employed in making the entries l thereon, for use in connection with the income control sheet, Discount-Notes and bills, shown in Fig. l; Fig. 8 isa view of the upper portion of a sheet for, and with the figures therein illustrated the method employed in, a proof of the several accounts pertaining to 4income from notes and bills 10o discounted; Fig. 9 is a view of va sheet containing a statement of Profit and loss' Receipts and disbursements; Income an expense, and Suspense balances, illustrating the form of the sheet theiefori and the method of preparing such statement from the accounts on vthe control. sheets vof the Accrual journal-ledger, and Fig.v 10 is. a broken View of a sheet for carrying in the general ledger the new combinedgin'come and Ho expense account controlling the accounts of the Accrual journal-led er.

Referring firstto the ncome control sheet for yDiscount--l\lotes and bills, shown inl Fig. 1, the sheet, with appropriate headings,

isA divided in'onc direction, as by solid lines or in any other suitable manner, into a ,plurality of horizontal spaces-an upper space for .a Balance forward from a preceding sheet, a series of spaces for *time unit entrieaao preferably daily entries for an entire month consecutively numbered at the lefty/and a spaceat the bot-tom for forward'footings to be carried to the nextsheet. The sheet is 'further suitably divided, in the'other cli- 125 rection, into a Discount earned, or accrual, section, a Discount received, or casl1,sec tion, and, preferably also, an Unearned discountbalance, or suspense, section; and the rst of these sections is sub-divided into Dr:7 121i Cr., This day Cr. balance', Adjustments, and Period to date ,Cr. balance columns,

and the second, or cash, section into Dr., Cr.,

' and Cr. balance columns.

ln' this sheet there are entered, at the close of each daywhen changes affecting the account have occurred andvupon the line provided 'for that day, in the respective `columns of the'accrual section, as a Dr.l item' the accrual unit or one days earnings on all discounted paper :which ispaid on ythat 'day and so ceases to produce earnings, as

a Cr. item theaccrual unit orone days earnings on all new paper discounted which onv that day begins to produce earnings, thevThis 'day balance which is the diiference between the davs debit and credit items 4 added to or substracted from the This day balance of the preceding day, the Adjustments if any, andthe Period to date balance which is the This day balance plus orminus the Adjustments -addcd to the Period to date balance of the preceding day, and, in the .respective columnsv of the cash'section,

as a Dr. item the rebates if any,zy as a Cr.-

item thediscount received that day, and, in the third or suspensel section`whenever desired, the Unearned discount balance, ob-

' tained by deducting` from the ldays Cr. balance of .Discount received the days Discount earned periodY to date balance.

These accrual unitsthe one days earn-l ings or interest, can .be established in any convenient manner, as by the use of the special interest tables which I havep'repared for the purpose. The credit unit is established,

and preferably 4set up'on the register, either by entering opposite each item the one days interest on that item and taking-the days total of such interest units, or by'aggregating paper bearing the same rate of interest and taking the total ofV theorie days inter-A est entered against. each aggregate. 4 The debit unit may be similarly established` and is preferably set up on the tickler. 4The debits and cash, seetion which represent the days cash transactions, are likewise preferably taken from the tickler andthe registerrespective;y

ly. The` adjustments also 'arepreferably originally established n, and laken'rOm, the registeror tickler.

On the register sheet shown in v6.,-

there is .provided vfor the purpose, in addition to Ithe usual columns as for ythey date, numberj of note, name of maker,.etc.a Daily earnings column or space, in-which 'to enter the one days earnings of the respective items.

and foot the. totall thereof for each day, 'and an Acerual adjustments column, wherein to f enter any plus or minus adjustments. 'The tickler sheet shown in Fig. 7 isalso rovided with similar additional Daily 'earnings and Accrual adj ustmentseolumns, and, prefsv f erably, with Interest rebate .and ,Interest credits in theDiscount receivedor' lreceivable columns for the entry of such items as rebates made at maturity on account of part'payments on'unmatured paper and interest not paid or advanced but payable at maturity. The register may be, and for certain purposes preferably is, writtenI up in multiple form/by use of carbon apen Then as illustrated in Figs.I 6 and either the original sheet or a-carbon copy may be used in making up the tickler by cutting it apart on the line a, to remove the two unnecessary right hand columns, and on the lines b, o, d,

e, f, g, h, ,7', ete., to separate paper or groups of paper having different maturity' dates and pasting or otherwise securing theparts properly grouped together according to maturity date, u on the tickler sheet. A second carbon copy o the register sheet may be made, if desired, foruse in making upa liability record for'jth'e borrowers. The register kept as `here shown'. rovides the vmeans for a readypdaily veri cation both ofthe discount received and of the accrual units as established since, by simply multiplying the'one days earnings of each paper by the number `of vdays it has to `run, the corre^tness of both setsvof \\iigures lisestablished. AWhen the tickler is\ prepared from'a copy of the veriiied' regis` `terj sheet,'it must at all times be correct both as to 'principal and accrualunits.

If Jsuclidetails are not desired, however, the l established` as .2535, either' as shown by.

entering the one daysinterest on each note and taking tl1e "sum of the three items or by taking the one days interest on the 1520.50 Vaggre,f fate of the three notes, and this 2535 is accordingly czrried to 'the Income control sheet andthere entered onI the July 1 line inl the- Cr. columnJ of Discount earned. Themas the ticklerI shows no payment for lthe 'day and as thereare no Balances forward, the .2535 isv simply carried along on the Incomev control sheet first to the This day and then to the" Period to date Cr. balance column, thelast two decimals being dropped in the last-extension asl they are less than half yafcent.v The discount shown on the register as received on each of these three notes is also footed, and the 1.01 obtained as the total is likewise carried to the Income control sheet and there entered to the credit of Discount received; and, as there is no 'tickler again showing no payment for the day, this credit is addedto' the .2535 balance of the preceding day and the sum .4183 is entered as the earnings for the day in the This day Cr. balance column. The register, however, vshows plus adjustments on two ofthe notes, on which (as out of town notes) an additional da-ys interest was collected. The .10 total of these adjustments is entered in the Adjustments column of Discount earned; and lthe' .4183 This day balance, plus the .10 adjustment, is added to the .25 Period toV date balance of the preceding dav and .77 entered as the sum thereof in the Period to date Cr. balance column. The .76 shown on the register, as the total of the discount received on the four notes is credited to Discount received on the Tncome control sheet, and, added to the 1.01 balance of the preceding day, 1.77 is entered in the Cr. balance column. i

For July 3, the .4276, established onthe register as the days earnings on the lfour notes shown as discounted at di'erent rates and for different periods on that day, is similarly credited to Discount earned on the Income control sheet and,this credit being added tothe preceding days balance, .8459 is entered as the This day balance. The Period to date balance of 1.62 is then obtained by adding to the .77 balance of the preceding day the This day balance of .85. The 1.34 discount received for the day,

`shown on the register, is -entered on the Inceme control sheet to the credit of Discount received and, adding it to the 1.77 balance for the preceding day, 3.11 is entered in the Credit balance column.

4 is a holiday, and the bank is closed'.

TulThis day balance of Discount earned and the Cr. balance of Discount received are therefore. the. same'as for the preceding day. v The Period to date balance, however, is 2.47, the This day balance being added to the Period to date balance of the day before.

For July 5 the tickler shows the payment of tive notes, and the .4401, which isv the footing o f the one days earnings of these notes, is accordingly debited on the Income control sheet to Discount earned. The reg.

ister shows the discount of five notes, and footings of .5669 for their one days earnings and 1.70 for the discount recelved.

These totals are accordingly entered on the Income control sheet to the credit of Discount earned and to the credit of Discount received, respectively. 'The .9727 This day balance of Discount earned is obtained by adding to the preceding days balance the .1268 difference between the days debit and credit items. And this .9727 is added to the Period to date balance of the preceding day to give the 3.44 new Period to date balf ance. lin the Discount received section the 4.81 Cr. balance` is obtained by -adding the 1.70 credit to the 3.11 balance of the day before. And for the purposes of the proof to be taken, as hereinafter described, the unearned portion of the Discount received is established, as 1.37, by subtracting the 3.44Teriod to date balance from the 4.81 received Cr. balance, and entered in the Unearned discount column.

F or vJ uly 6 the tickler shows the payment yof four notes and the footing of their one days earnings is .1648. This figure is according debited to Discount earned on the Income control sheet,'and, as the register shows no lbills discounted, the This day balance of the day before is reduced by that amount to .8079, which produces a Period to date balance of 4.25. There being neither debits nor-credits to Discountreceived, the Cr. balance in this section remains as beore.

fFor July 7 the .3660' footing of the one days earnings of t-he three notes shown on ,the tickleil as paid on that day issimilarly debited yon the Tncome control sheet to Discount earned, and-as no new notes have been discounted the This day and Periodl to date balances are established in the same Way as for the day before.l The tickler shows, however, that one/of the three notes paid is a note due on the following day, and that an interest rebate of .12 was made on account of the pre-payment. This .12 is therefore debited on the Income control sheet to Discount received,- and the preceding days Cr. balance is reduced by that amount to 4.69. This balance in the received, or cash, section being the. same asthe Period to date accrual balance, all the discount received is shown'as now earned. I

For July 8 the footing on the tickler of the one days earnings of the four notes shown as paid-on that day is` .4419, which is debited on the Income control sheet to Discount earned and, the notes discounted having all been paid. the .This day balance is closed out, and both the Period to date balance and the Cr. balance to Discount re- \eived remain as before at 4.69.

Referring now to Fig. 8 of the drawings, the proof of the several accounts pertaining to lincome from notes and bills discounted, therein illustrated as. taken as of the Close .of July 5 is mede from ,the tickler footed up, show 5,469.36 as the total of the unmatured paper. The respective Daily earnings totals applying to these aggregates, shown on the tickler as .1648, .2410, land .5669, are similarly entered in a Daily earnings column, and, footed up, give a total.

of .9727. In case the itemized'daily earn'- ings are not currently carried on the tickler,

they should be set up, preferably on the tickler, for the purpose ofthis proof. Then, asnotes have been treated as beginning to earn on theV day on which they were discounted and hence produce no earnings-on the day of payment, the Days to maturity are 0, 1 and 2 for .the paper maturing July 6, 7 and 8, respectively.v Therefore, the daily earnings, multiplied by the days to maturity, produce, for entry in an Unearned discount column, 0000 for the July 6 paper, .2410 for the July k7 paper, `1.1338 Vfor the July 8 paper, and a total unearned discount of 1.3748 on all unmatured paper. The total of the amount principal thus obtained should agree with the balance for that Aday in the bills discounted account on the 'general ledger. The footings of Daily earnings and of Unearned discount on the proof, which agree with the This day balance in the accrual section and the Unearned discount balance in the suspensel section of the Income control sheet, thus prove the correctness of these two balances.

A proof of this kindis also used as the basis for opening the account on an Income control sheet for Discount-Notes and bills, where the l account has previously been carried onthe books asa non-accrual account or as an accrual account by methods heretofore employed. If carriedas. a non-accrual account, the cash balance of discount re-` ceiv'edonly would showen the books. The proof produces the daily earnings accrual figures and the unearned discount figure to be set up on the Income control sheet. For example, in setting up on Julyegarcontrol sheet for an account having on that day a credit balance of 4.81 to Discount received, the .9727 total Daily earnings and 1.37 Unearued discount shown on fthe' proof are entered as the July 5 balances in the proper columns in the accrual and cash sections,A

respectively, of the Control-sheet, and the Period to date balance of 3.44 to Discount columns and thesuspense balance for the.

Unearned discounty column should be available from therecords. A proofv is taken to verify the correctness of these balances,

-which, after adjustment for any errors 'dis cosed, 'are set up on the Control sheet, and the Gr. balance in the cash section is then established by adding the earned Period to date balance tothe `Unearned discount bal-- ance. v f

rllhe Income control sheet for Interest- Due from bank accounts, shown in Fig. 2, is sim.

the interest earned or accrual section, howevei-thereis a single column for Balance due -from banks, in' place ofthe Dr. and Cr.

columns' on the discount sheet; also, since in this classification interest is earned before it is received and hence theresulting suspense figures will be a debit balance, representing interest accrued receivable, they column 1n the suspense section is for convenience used 4 column.

as an Interest accrued lreceivable Dr. balance In this classification` the accrual unit is thev one days earnings, preferably established by the use of the s ecial interesttables referred to, on the aily balances due from other banks as shown on the banks own books and at the table rate neaest'lthe average of tlie different 'rates of interest -received on such balances. lThus,.in the example'here given, the balance due from vbanks on July 1-' is 94,200, andi this balance 'remains the same on the following day. FThe table rate nearest thel average rate of the interest thereon is found to be 21/per cent. lAnd the one days earnings on thlsbalance' at such rate is 6.5500, which is accordingly entered as lthe T his day balancefor both July v1 and July 2 and extended to the Periodv to date column, on July 1 by adding it to the 189.95 Balance forward inl that column and on'July 2 by addingl it to the 196.50 balance of July 1 thus obtained. In the Interest received or cash section, 81.42 is credited on July 1 and extended to the Credit balance column by addingit tothe Balance forward of 21.40 from the preceding sheet,"making the entry 102.82 for that day; and on July 2 there, is a credit of 9.42, which, extended, gives a credit balance of 112.24. The suspense balance, which for any given date is the dif-l ference between the period to date balance".

of earnings and the credit balance of receiptsA and hencel is 93.68 for July` 1 and 90.81 for July 2 in the example given, can be f established and entered whenever desired for purposes of proof or otherwise. These two balances being, as already explained, debit balances las usual in this classification, may` be entered when desired in the Interest actered in the Dr. balance column. If the accrual balance in this classification should at any time run less than the received balance, it would indicate that the average interest rate in use was too low, and a new awrage should be taken and the accountadjiisted accordingly.

The Income control sheet for exchange, Fig. 3, illustrates the Aform of control sheet for an income or expense classification which is` carried on a non-accrual basis, the income being considered as earned when received `or the expense as incurred when paid. On this sheet there is only one, or cash, section, which is divided into appropriately headed Debit, Credit and Credit balance columns.

This section is twice repeated, to make use of the entire sheet, as all control sheets are preferably uniform in size.

In the example here shown, there is a debit of .7 6 and a credit of 3.18 on July 1, and the Cr. balance of 72.60 for the day is established by adding the difference'between these debit and credit items, amounting to 2.42, to the v70.18 Balance forward 4from the preceding sheet. And on July 2 there is a debit of .22 and a credit of 1.28, which items, extended, give a Cr. balance of 73.66 for the day.

lentered in the Dr. balance column.

The Exppnse control sheet for Discount- Bills paya le, Fig. 4, is the same inform as the Income control sheet for Discount-- Notes and bills (F ig. 1). The headings of its three sections are appropriate to the classification,'an'd what were Cr. balance columns on the Income control sheets are here normally Dr. balance columns.

In this account the Expense-Discount, or

accrual, section Ais dailydebited and credited,

respectively, with the accrual unit or on'e days interest on all bills payable which on that day begin, and cease, to be an expense, and the difference between these two items is extended first to the. This day and then to the Period to datecolumns. The Discount paid, or cash, section is similarly debited with the discount paid and credited with any rebates received, and the difference is extended to the Dr. balance column. The suspense balances, being the Idifferences between respective Period to date accrual and Dr. cash balances, are normallydebit for this expense classification, since the discount is usually prepaid. These balances arel accordingly entered, whenever desired, in the Prepaid discount Dr. balance column provided for the purpose.

Thus, in the example here shown, for July 1 there is a debit of 3.2877 to Expense- Discount, and, as there is no credit for the day and no Balances forward, this same amount is entered both in the This day and the Period to date columns, the last two figures being dropped in the latter column and the preceding 8 raised to 9.as the figures dropped amount to more than half a cent. For the same day, 49.32 is deblted to Discount paid, and, as there is no credit for the day and no Balance forward, the same figures Tare- 501 July 2 the debit to vExpen:se-Discountv is 2.4658, and, there being no credit item, is extended by adding ,it to the This day and the. leriod to date balances of July 1, making these balances 5.7535 and 9.011, respectively; and the 19.73 debited to Discount paid is similarly extended by adding it to the D1'. balance of July 1, giving a new balance of 69.05. The suspense balances for these two days will be found to be 46.03 and 60.01, respectively.

The Expense control sheet for miscellaneous expenses, Fig. 5, is in form the same as the Income control sheet for Interest-Due from bank accounts (Fig. 2)', with appropriate headings for its sections and columns.

p For this classification, the estimated total of such expenses for the year, amounting here to 6,000.00, is entered inthe Estimated per annum Dr. balance column in the accrual section, andthe entry continues the same from day to day unt-il a change in the estimate requires a different entry. The accrual-unit. or one days'share of such total is 16.6700 in the'example given. ures, preferably obtained from the interest table, are enteredin the This day column and extended from dayto day to the Period These figif to date column by 'adding it, on July 1, to'

the 500.00 Balance `forward and, on subsel quentdays, to the Period to date balance of the preceding day. In the cash section of this account, the debit of 6.85 shown on July 1`is extended to the Dr. balance column by addin it to the 802.55 Balance forward,

and the tebit of 16.40 on ,July 2 is simi larly extended by adding it to the Dr. b alance of 809.40 for July. 1. The suspense balances, which for the two days in question will be found vto be 292.63 and`292.36, respectively, are debit balances and represent prepaid expenses. Accordingly, whenever entered in the Reserve for Misc. expenses Cr. balance column here provided, the opposite character of these balances should be suitably indicated.

The forms of the control sheets for the other classifications of income and expense under which the business of a bank is carried, and the methods of"keepingthe accounts thereon, are similar to one or the other of those here illustrated and need not be described.

The method of opening the accounts upon the different control sheets is similar to that already described for starting the Income i control sheet forDiscount-fNotes. and bills. Vhere the books have previously been kept on a cash basis, the accrual units of earnings 6 and expense and the suspense balances of income earned receivable or, received but unearned and the expense accrued payable, prepaid, or reserves are first established in /any suitable manner and set up. in the col- 1o umns provided thereforA on the appropriate control sheet. The cash balance available from the records is entered. in the `cash section of the control sheet, and then the'l Period to date accrual balance to be entered is established from these two figures; and where the books are already on an accrual basis, lthe balances to be entered in the cash section 1 of the sheets is established yfrom the accrual and suspense balances obtained `from the records. i

In some of the classifications-for example,'in. those lof income from bonds which I are usually bought at a given price plus acv crued interest and 1n those of expense where a reserve is set aside for depreciation', investy ment losses, and the like-#it will not infrequently happen that the balance to be env tered inthe Cr. `or Dr. balancev column of the cash section of a control sheet'will be of opposite character to' that designated by the heading at the top of the column. This inay valso occasionally -happen in any classifica-J tion, in a column either in the accrual, cash,

or suspense section ofthe control sheet.. In all cases where it does occur, the opposite character of the figuresv entered should be suitably indicated, preferably by making the entry in red ink. And in adding, subtracting, or multiplying such gures they are to be treated as minus figures, inA thev usual way. 1

The Daily statement vof profit and loss;

Receipts and disbursements; Income and expense, and Suspense balances, shown lin Fig.- 9, illustrates. a complete detailed daily, pe# riodic, or occasional statement prepared, as of the close of July 2,.from the various control sheets, including those hereinabove described, covering the different classifica- -tions of a banks accounts, both of income and expense. l

The sheet for the statement, providing horizontal spaces :for the different income and expense classifications and for the subtotals,.totals and net of balances, is divided into three sections ,corresponding to those on the control sheets-a Profit and loss balances or accrual section which is sub-divided into two appropriately headed columns for This day or month and Period to date balances,

a cash sect-ion which has acolumn for Balances'mincome & expense received & paid accountsa'nd, preferably, also Dr. and Cr. columns'for the current days cash transactions, and a vSuspense balances section balances in the accrual section-and the C1'.v

"vthe same character, both debits or both ances in red inkl (indicated onthe drawings Aby lan R in parentheses). 4lVhere, as on the -columns respectively for the Amount and Description of such balances.` A

In the preparation of a daily or other statement, the entries, in the Dr. andCr. columns of the cash section are preferably made from the currentAdays records of cash transactions andthe footings of these two columnsLhere shown as 37.39 and 236.52 respectively, serve as journal entries for the general journal, 'and from there the totals are posted in the new Income and expense accrual control account in the general ledger, shown in Fig. 10 and hereinafter described.

'lheJuly 2 This,day and Period to date balance in the cash section of the various .control sheets are copied in the-respective j ance of each classification when the corresponding accrual and cash balances are ofl o5 credits. In case such accrual balance is the lesser ofthese two balances, the resulting suspense balance will be a plus uantity, representing a balance of .the same ((:lharacter as that of the two balances from which it is derived; but,'w here"the accrual balance is reater than the cash balance, the resulting u'spense balance will be a minus quantity,l representing a balance of opposite-character to that'of these two balances. Thus, a plus balance will represent income unearned or expense prepaid, as the case may be, while a minus balance will represent, incase ofincome, the accrued earnings receivable and, in caseof expense, either an accrued expense payable -or a reserve.` And to readily-indicate their character,'the figures of plusl balances are preferably entered on the state?. ment in black ink andthose of minus bal- Income control sheet, Exchange (Fig. 3), the classification is *on a non-accrual basis, and as stated the income is treated as earned when received or an expense as incurred when, paid, the Cr. balance is entered on the statementin the Periodv to .date column of the accrual section as well as in the Income & vexpense received & paid column in the cash section; the entry for the This day col-v F15 umn of the -accrual section is the difference,Y vplus or minus as the case may be, between the cash debit and credit items of the current dayand'there will beno Suspense balance. These four columns of balance e en footed for totals, both of the income and of the expense classifications, and the respec tive expense totals are deducted from theincome totals. It is to be-observed that in footing plus and minus figures, the total is the difference between the sum of the plus 4figures and the sum of the minus figures andVx will be a 'plus or minus total according to which one of said sums is the greater'.- The subtractions also will give plus or minus remainders, according to circumstances, as will clearly be understood without further explanation.

Of the net balances obtained, that in the This day column of the accrualsection, amounting to 38.84 in the example shown,-

is the Net profits for the current day. 'l he 711.86 shown as the Period to date balance, in the same section, is the Net profits for the period to date. The (R) 01.26 balance in the cash section, here a minus balance, is the net of the Income & expense received f& paid balances. And the balance of .(R)

2,413.12 in the Amount column of the sus-x pense section, also a minus balance, represents the net of the Suspense. balances.

The statement is preferably made up in multiple, to provide copies for the use ofl different officials; and, more especially,I for the auditor who uses it as the basis for his daily or periodic audit and control.

In checking up or verifying the statement, the remainders obtained by deducting the 'sub-totals, totals, and net of the detailed.

balances in the Period to date column of the accrual section from the corresponding balances in the'lncome & expense received &

pai-d column of the cash section should be found to agree, respectively, with the subtotals, totals, and net of the detailed balances inthe Amount column of the suspense section; and, in case an error is thus disclosed in one of the sub-totals, the error will be in one of the classifications included therein and hence readily located. The Net profits of 711.86 here shown for the period to date should be the same as that obtained by adding the Net profits of 38.84 for the current day to the Net profits for the period to date shown `onthe Daily statement of the pre--` ceding day, and when in agreement proves the' extensions of the This day balances and Vadjustments to the Period to date column in the accrual section on all of thecontrol sheets with the same certainty that lcould be obtained under other accrual methods where these entries are double posted to the 'socalled nominal and suspense accounts in the general ledger and with the additional assurance that no accrual entry as established in the This day column ofthe control sheet could possibly have been posted to the wrongA classification. And the (R) 1,7 01.26 net of the Income & expense Vreceived & paid balances should agree with the balance for the current day vin the Credit balance column of the new Income and expense account in the general ledger, now to be described.

horizontally and vertically, to provide apl,

propriately headed Date, Debit, Credit, and Credit balance columns in which to make the necessary periodic entries.

After the system has once been put in operation on the income and expense control sheets, the account is readily opened, if books havey formerly been kept on a cash basis, by closing thereto'all of the income and expense received and paid account balances carried on the generalledger `or elsewhere, or, if books have formerly been kept on anaccrual basis, by closing thereto all of the .period to date,'accrual, suspense and non-accrual cash balances of income and expense appearing on the general ledger or elsewhere.` l I Any, proper journal entry may be used as the basis of closing the several balances of income and expensev to lthe new General 'ledger control account, but preferably the daily statement form, as shown in Fig. 9, is prepared and serves as the journal entry and as the posting medium. The individual period to date accrual, cash, and suspense balances are all shown on the statement and the necessary postings can be readily made.

in detail to close the respectivey accounts. The offsetting entries for the new General ledger control account can also be made in lle) detail but are-preferably `made by posting p therein, if books have formerly been kept on a cash basis as a credit, the net of the Receivedand paid balances; .if books have formerlybeen kept on an accrual basis, as a credit, the net of the. Period to date ac: crual balances and as a debit, the net of the Suspense balances. The differencek between the debit and credit entries should be extended-and properly indicated in the Credit balance column.

After the account is started, it is debited Vand credited each day` .preferably through thev general journahwith daily totals only of income and expensea's shown bythe Dr..

and Cr. columns in the cash section of the statements prepared. The new balance is established by adding to or subtracting from the preceding balance as required,the

- inference between the current debit and 4ance account with corresponding heading over the Balance column, in which event a debit balance would be entered therein in closing.

black inkgjwhereas a credit balance would be indicated in red ink. i'

Forexample, in theJ account illustrated, thenBalance forward from the preceding sheet is (R) 2,482.10, a debit balance. The postings under date of July 1 are a debit of 96.20 and a credit of 677 .91, and the new balance as extended in the Creditbalance column is (R) 1,900.39. For July 2 there is a debit of 37.39 and a credit of 236.52,

which, as previously explained. were established by the footings of the Dr. .and Cr. columns on they daily statement of this date (Fig. 9), and the balance for the day, eX- tended as before, is (R) 1,701.26; which balance is used to control, and beingr in' agreement therewith proves, the net of the balancesjin the Income & expense -received & paid accounts of the cash' section of the daily statement andl through suchfstatement the several accounts in the Accrual journalledger. y

As hereinabove explained.v it is unnecessary and inadvisable, after the account has once been established in the general ledger, topost any accrual entries thereto except for the purpose of closing` the books at the end of a fiscal year.

For closing the books, a complete detailed statement is prepared as vof the date of Then, from lsuch statement the net profits shown thereon are posted` preferably through general journal entries, as a debit to the Income and expense account and as an offsetting credit to thePro'fit & loss. y account on the general ledger, thus transferrin the eriods profits from the former 4 to the lat-ter account and closing out all of the supporting'Period to date accrual balances and non-accrual cash balances.v The newly extended`baiance of the Income and expense account in the general ledger then agrees with the net ofthe Suspense balances shown on the statement, and the detailed Suspense balances on the statement. supporting such net` balance, become the opening Received and paid balances for the lnew period for the Income and expelfse control sheets, the Suspense balance for each classification of income and expense beingy entered as the Balance forward in the Cr. or the DI'. balance column of the cash section of the appropriate control sheet. red ink figures being entered in red and black ink figures in black. For example, assuming that 2, the net profits of 711.86 shown on vthe dally statement are debited .to the Income and expense .accountfin the general ledger and, deducted from the Credit balance o (R) 1,701.26,'gives (R) 2,413.12 as the new Credit balance; and the detailed" Suspense balances (R) 1.40.,(R) 58.86, 1;00, etc.are respectively entered as the .Balances forward in the Cr. balance column of thecash section of the new control sheets for Interest- Demand loans, Interest-Time loans, Discount-Notes and bills, etc. It is apparent, therefore, that if a daily statement wasv prepared immediately after the closing' of the books the detailed vSuspense balances shown on the prior statement would be found in the Balances income & expense received & paid cohnnn of the new statement, the closing of the books merely shifting these balances from the one column'to the other.

. the books are closed'as of the close of July Vssr . A complete `detailed statement as shown is required only'for the closingof the books, for the pre aration of aLiquidating balance sheet` orl or reports of condition. Hence,

for other statements, the lSuspense balances,

at least the detailed balances, need notbe established as'they are unnecessary for the vcurrent audit, prooffor comparative purposes. l

A Trial balance from the general ledger, when lkept under my system, will show the single control Credit balance of the Income and expense account, instead of the detailed cash, or accrual and suspense, balances of the usual nominal accounts.

Further, a liquidating prepared at any time, working preferably from` a generalledger trial balance and current. daily statement, by copying on a form therefor, in liquidating order,.the Resources balance sheet can be and the Liabilities, Capital, Surplus,- and Undivided profits balances` as shown on the trial balancel 'and then, inserting in their proper places therein, as an offset to the control balance of the Income and expense account which is dropped) from the Trial .balv ance, the Netl profits for the period to date and the 'detailed suspense balances shown on the statement. y v

It is seenthat, under my new system, the income and expense accounts are in effect kept on a cash basis-that is to say, that all income received is credited in a series of'Received accounts and all expensespaid-are debited in a similar series of Paid accounts. These current cash transactions are merged' with the opening suspense balances, both for economy of entries and to facilitate the preparation of the statements, but the cash balances in all classifications can readily be obtained, at any time, by-merely deducting from the current balances in the Income and expense Received and Paid accounts the respectivesuspense balances brought forwardgf'at the Non tlie'accrual and cashbasisl-which -is apbeginning of the period.

The system therefore aiords with a minii mum of entries a clear-cut and detailed current analysis of all income and'ex ense accounts, both cash and accrual,. W ich', to-

. gether with the automatic audit andl control cash transactions bothdebit andcredit for provided, is invaluable to anauditor orbank examiner and practically eliminates the opportunity for any fraudulent manipulationl of the nominal or suspense accounts.

What I claim as new, and desire to secure by' Letters Patent, is 1. An accounts sheet which is provided with. appropriately designated columns inf which to keep, in.; juxtaposed accrual. and cash sections and on successive ,linesl for successive units of time, the items of an ac-j count both on an accrual and a cash basis.

2. An accounts sheet which is. provided with appropriately designated columns inA which to keep in juxtaposed accrual, cash, and .suspense sections respectively and on successive lines for successive'units of time, accrual, cash, and suspense accounts.

3. A sheet for an accrualy account which is provided With appropriately designatedj columns for the entry, on successiveA linesv for successive units of timegfof accrual bal` anc-es both for the current time unit and *for the peried to date and of the corresponding the current time unit and the received/paid balance for'the period to date. f

4. A sheet forI an income/expense accrual account which is provided With appropriate- 1 1y designated columns for the' entryi, on suc-1' cessivev lines for successive-units. of time, ,of

` f]- .11.' A sheet'forv an accrual account of in- I current accrual units botli debit and .'credit and the balances of suchfaccrualjunits' both propriately designated columns for the en current and for the period to date. f

5. A sheet yfora-n income/expense, accrual account which is provided withgapproprately designated columns ifnvvhicli' :to enter, "on successive lines for succkessiveiunits of time,

in an accrual sectioniethe curreiit accrualj units both debit and-credit' the' accrual balances both for the current time unit and, for the period to dateniir'a casl'i, section the` current cash transactions both debit ,and

credit and the received/paid balance for the period to date, and inasuspense section the appropriate unearned/prepaid, accrued receivable/payable, reserve balance.`

6. A sheet for an income/expense accruall account which is provided lwith appropriately designated sections andcolumns for thel transactions both debit and credit and the.

received /paid balance for the period to date.

'misses 7. Asheetifor an account of income both propriately divided and sub-divided into an a receipts section with the ifcorresponding credit, debit and periodl to' date credit balance columns. l

8. A sheet for an account of income which is e appropriately divided and subfdivided into an earnings section With current time :unit credit balance, and period to date credit l.balance "columns, a receipts section with l-fcredit,debit and period to date credit balance, and a suspense sectionwith unearned receipts 'credit balance columns. '9:v Asheet for an account of a given classijicationy of income which is appropriately divided and sub-divided into an earnings section. with credit, debit, current time unit credit balance, adjustments, and period to date'credit balance` columns, a receipts secearned receipts balance column.

1 0.- A sheet for an accrual account of income'froin time paper which provides appropriately designated columns in juxtaposed accrual and cash sections for the entry, on successive lines consecutively numbered forsuccessve units of time, of .the current debitfaccrual unit, the current credit accrual unit, the current accrual credit balance, the period .to date accrual balance, the correspending current total of income receivedv gli Ition with. credit, debit, and period -to date f l `credit balance columns, and a suspense section yWith earnings accrued receivable/unvthe-current vtotal of rebates, and the period to date balance of income received.

come' from time paper which provides aptry, on successive lines consecutively numbered-With the daysof a month,fot the accrual unit of 'paper which on that day begins to earmthe accrual unit of paper which on that day ceases to earn, the current accrual `cred/it balance of said units, adjustments,

if any, and the balance. l l12. A 'sheet for an accrual account of in come from time paper Which provides horizontal spaces' consecutively numbered for period to date accrual credit -the days of a month and appropriately -umn in a suspense section.

13. A sheet for the register of discounts and loansJ on time paper and similar assets or liability accounts which has thereon, in additionto the usual columns, an v.appropriately designated column in which to enter the accrual unit of each item and the footings iio Viir

' of such accrual units of all items registered and entered as usual on said sheet .during glven umts of t1me.

14. A tickler or maturity sheet for dis-v counts and loans on time paper yand similar 'assets or liabili-ty accounts which has there- 0n,in addition to the usual colulnns, an appropriately designated column in which to enter opposite the usual entryof each item the accrual unit ofv said item and the footings or balance of such accrual units of all items so entered during given units of time.

comprises portions of a register sheet ot'l the same time paper onl which have been entered the accrual unit of each paper, the

A portions of said? register sheet being arranged on the tickler sheet to vgroup together v'the different papers according to their maturi dates.

17. an accrual system of accounting for income from time paper the method ot' preparnga tickler sheet which comprises preparing in duplicate a' register sheet on which is entered'the accrual unit ot'each paper taken 'and then cutting apart one of said duplicate register sheets to separate the paper or groups vof paper having different maturity dates and attaching lthe parts grouped together according to matin-ty dates on the tickler sheet.

18. A new system of accounts, comprising a plurality of sheets for ldifferent classilicationsV ot income andexpense each of Which sheets is provided with accrual-and cash sections shaving appropriately designated` columnsl 1n Wlnch to carry, on succosslve lmes forsuccessive umts of time, the ltems of an account both on an .accrual and a lreceived /paid basis.

19. A new system ofv accounts, compris'ng ajplurality of sheets for different classifiu'v tions ot income and expense each of whichl sheets is provided with appropriately designated columns in which to enter the debit and credit items of the account both on an accrual and a cash basis, on successive lines for successive units of time, in the accrual section'hoth the accrual units of such items for the current time unit and thev period to date balances of suchlaccrual units and in the cash section both the corresponding debit and credit c ash items for the current time unit and the period to date received paid balances ofsuch cash items.

21. A new system of accounts, comprising a plurality of sheets for different classifications ofincome and'expense each ofwhich sheets is provided with appropriately designated columns in which to enter, on successive lines for successiveunits of time, in an accrual section both the current time unit and the period to date accrual balances, in a cash section bot-h the current time unit debit and credit cash items andthe period to date received /paid balance, and in a suspense section the s uspense balance.

22. A new system of accounts, comprising a plurality of sheets for di'erent classifications of income andexpense each of which sheets is providedwith appropriately designated columns in which to enter, on successive lines for successive units of time, in an accrual section the current accrual units of the items of the 'account both debit and credit andthe period to date balances of such accrual units and in a cashsection-the Vcorresponding cash transactions both debit .andcredit and the received /paid balance of such cash transactions for 'the period to date.

23. A statement sheet for accrual accounts, which provides suitable parallel-columns for the entry, opposite the v-dil'erent cls issifica'-1 tions of Income and expense, and for the necessary footngs, in an accrual section ofthe respective accrual balances both for a given time unit and for the period to date, in a cash section of the respective received /paid vbalances for the period to date, and in a suspense section of the respective suspense balances. i

24. A statementsh'eetfor accrual accounts, which provides appropriately designated columns for the entry, opposite the 4dil'erent classifications of income and of expense, and for the necessary ootings, in. an accrual section ofv the respective accrual balances both for a given time unit and for the period to date, in a cash sectionfof. the respective cash debit and' credit items for the said t'me unit and the respective received /paid balances for the period to date, and in a suspense section of the respective suspense balances.

25. In a system of accrual accounting, means'for a continuous automatic audit and control of a given classification of accounts comprising a sheet Whichis provided with appropriately designated Columns in which to enter in horizontal alignment, on succesl:Les

- sive lines for successive units of time, in an Cil accrual section .the extended accrual balances of cash transactions both fort-he current time unit and forthe period to date and ina cash section'the said cash transactions both debit and credit forthe current time limit and the extendedl cash balance lfor the period to date.l

'26. In a system of .accrual accounting, means for a continuous automatic audit and i control of certain classifications of accounts comprising ashect for .each of said classifica-` tions which is provided With appropriately designated columns oidthe entry, in juxtaposed accrual and cash sections and in horizontal alignment on successive lines for successive units of time, in the accrual section of the current accrual units of the cash transactions both debit and credit 'in` a given classification and the extended accrual balances of such units both for the current time unit and for the period to date and in the cash section of the said cash transactions both debit and credit in said classification for the current time unit and the extended cash balance for the period to date.

27. In a system of accrual accounting, the combination of a plurality of sheets, a separate sheet for each of certain selected classifications of accounts, each of which sheets is provided with appropriately designated columns for the entry, in juxtaposed accrual and cash sections and on successive.

lines for successive units of time, in the accrual section ,of the accrual balances of the cash transactions in a given classication both for the current timeunit and for the period to date and in the cash sectioniof the said cash transactions in said classification both debit and credit for the current time unit and 'JtheA cash'ba'lance for the period to date.

28. In a system of accrual accounting, the' combination of a plurality of control sheets for income and expense accounts, a separate sheet for each classification 'of said accounts, some at least of whichsheets are provided with appropriately designated columns, for the entry, in juxtaposed accrual and cash'sections and'in horizontal alignment for a given unit of time, in the accrual section of the debit and credit accrual units of the debit and credit cash transactions in a particulary classification for the current time unit and the extended balances of such accrual units both for the current time unit and for. the period to date and in the cash section of the said debit and credit cash transactions in such classification for the current time unit and the extended cash balance for the period to date.

29. In asystem of accrual accounting 'for income from the discount of time paper, the combination of a sheet which is provided with appropriate spaces l .for entering by the accrual unit of all `paper paid during' each time unit, and a third sheet which is provided with appropriately designated columnar spaces for entering, in -juxtaposed accrual and cash setions' and in horizontal Aalignment for each .successive time unit, in

the accrual section as a creditthe current accrual unit shown on the first sheet and as a debitthe current laccrual unit shown on the second sheet and the extended current and period to date credit balances of such accrual units and in the cash section as a credit the current total income received shown on the first sheet and as a debit the current total of cash rebates if any and the extended peiiod to date balance of such cash items. i:

A 30. In a system of accrual accounting;r for income from the discount of time paper the combination of a, register sheet Which provides appropriate spaces for the entry, in

addition to the usual data, of the established register sheet as a credit, the current accrual-unit from the tickler sheet as a debit, the extended currentl balance of said accrual units, and the extended period to datel balance of said accrual units, and in an income received section the total income received on all paper discounted during the current-,time unit as a credit', the total cash rebates if any paid during the current time unit as a debit, and the extended period to date balance of said cash receipts and payments.

31. In a system of accrual accounting, the combination of a plurality of control sheets for certain given classifications of income and expense accounts, a separate sheet for each separate classification, which provide appropriate columnar spaces for the entry, in horizontal alignmentby units of time, i'n an accrual section' of the 'extended accrual balances in a particular classification'both for the current time unit and for the period to date and in a cash section of both the debit and credit totals of cash transactions in said classifications for the current time unit and the extended period to date cash balance, and a statement sheet which provides appropriate columnar spaces for the entry opposite the different classifications of Aincome and expense, and for the necessary I footings', in an accrual section ofthe re- 2doA ,colne and ezpense accounts which provide appropriate columnar spaces for the entry, in horizontal alignment by units of time, in an 'accrual section of t/he currentwcredit and debit accrual units in a particular classification and the extended current and period ,to 'date balances ofgsuch accrual units and in .a cash section vof the current credit and debit cash transactions in said classification vandA the extended period to date balance of such cash transactions',` and a statement sheet which provides appro riate columnar spaces for the entry, as of t e close of any given time unit and in horizontal alignment opposite the different classifications of income and of expense, ofthe twoaccrual balances andv of; the-.cash balance shown respectively onv the Several controlsheets and of the suspense I balances of the respective classifications as yestablished from the accrual and cash bal-l l classifications of income and expense acp' counts, all of which sheets provide appropriate columnar spaces for the entry on'successive linesV in horizontal alignment by units of time of the current time unit cash receipts and cash payments in a particular classification and the extended period to date cash balance and some at least of which sheets provide addition columnar spaces for the entry, in horizontal alignment With the corresponding cash entries, f the current time unit credit and debit accrual units in said classification and the extended current vtime unitand period to date balances of such accrual units, and a statement 'sheet which provides appropriate columnar spaces for the entry, as of the close of any given time unit and in horizontal alignment op osite the different classications of income and of expense, ofthe cash balance and of the accrual balances ifgany shown respective-ly on the several control sheets and of the suspense balances of the respective classifications as established from such balances therein.

LEWIS a. roo'rn. i' 

